Car manufacturer efforts to comply with the UK Government’s ZEV mandate are having a serious impact on EV residual values, and could in turn lead to higher leasing costs for fleets.

That’s according to MG Motor UK commercial director Guy Pigounakis, who highlighted the measures some manufacturers were taking to comply with the mandate, which requires them to sell an increasing percentage of EVs annually, or face fines.

Speaking at an MG media event, Pigounakis said: “There’s a strong suspicion in the industry that come Q4 some manufacturers will just deliberately dry up supply of petrol cars, as they have done on several occasions in the past for [EU] CAFE regulations, purely and simply to drive up the percentage share they’ve got of the electric cars they have. 

“There’s frantic scrabbling around looking for partnerships, and the other thing that’s going on of course is a huge amount of discounting by some manufacturers, especially the premium brands, to get their cars into a more affordable position for customers to actually buy.”

Retail offers

Pigounakis explained that having had success in the corporate sector until now, manufacturers were now seeking to get retail customers into EVs.

He continued: “Some of the discounts are having a catastrophic impact on residual values, to the point that if you talk to bankers, the leasing sector in particular, they are starting to get very nervous about some of the contract hire terms that they have in the fleet market, purely and simply because they are looking at their exposure in their electric fleet, and the decline in residual values they are seeing with the used values of those cars. 

“If you’ve got one or two electric cars coming off fleet in the next few months, you’re not going to be very happy, [but] it’s not the end of the world. If you’ve got two or three thousand, and they’ve dropped £10,000 against your guaranteed future minimum value, then you might find yourself in the same position as the global chief executive of Hertz, looking for another job, after he put all those Teslas on their fleet globally. 

“Hertz for instance have announced globally they will not be touching electric cars for the foreseeable future, and I’ll tell you now that rental companies in the UK have no interest in putting electric cars on their fleets either.”

Pigounakis added that retail discounts could end up having an effect on corporate demand.

He said: “It’s going to be quite interesting to see how much this aggressive positioning of cars impacts the retail demand, and if that increase in retail demand has a subsequent negative impact on corporate demand, as rentals go up to compensate for the discounting that the manufacturers are undertaking. 

“We are affected by that. We finished last year [with] just under 40% electric mix, we’re running at just under 24% this year, so you can see it’s a dramatic decrease in our electric share. We’re not doing anything in particular to force electric cars on the market, because frankly as long as we finish at 22% we’re OK with that.”

Potential developments

Pigounakis said that MG would be monitoring the situation, with the industry increasingly raising concerns about the ZEV mandate as it currently stands.

He said: “We’ll see what goes on with the government and manufacturers over the next three or four months. But I think the ZEV mandate, and the impact it has on manufacturers’ positioning and margins, is going to become ever more front of mind for people like ourselves over the next six months.”